Presentation on Institutional Action Plan

Chairperson: Ms. Kate Mckee, Director, Office Microenterprise Development, USAID, USA.

Presenters:

* Dr. Prakash Bakshi, Chief General Manager, Microcredit Innovations Department, NABARD, India

* Mr. Shafiqual Haque Chowdhury, Managing Director, ASA, Bangladesh

Dr. Prakash Bakshi, Chief General Manager, Microcredit Innovations Department, NABARD, India

Dr. Prakash Bakshi said that 70% of the NABARD members live in the rural areas. From his experience with the poor, he said there are ladders in poverty. Still the NABARD is not reaching the poorest segment of the society in India.

He mentioned that there should be non-interest loan transaction to address the poorest segment. However, unfortunately, the poor people in some places of the world pay the highest rate while taking loan in microcredit.

Mr. Bakshi said the poor are very vulnerable while put into a production mechanism as they tremble to risks-in rain or shines.

He opined that investment for real poverty alleviation is needed. Adequate and well-placed investment will automatically eradicate poverty.

The problem in poverty alleviation is that it is usually others who decide on how to alleviate poverty, not the poor themselves. In this regard, he proposed a real participatory method what NABARD tries to follow in India.

The poor need to develop crisis coping capacity and the situational management power. They also need hassle-free program for poverty alleviation.

To do these, there may be two possible ways:

One of them is identifying the poor, which Bakshi termed a huge issue for all time. He then raised the question whether it is possible to design products that are meant to be only for the poor.

The Self-help Group in NABARD is of that kind, where the savings of the poor people in the group is deposited with the bank, not invested in the loan program.

NABARD follows the scaling down of the loan size, linking the poor with the banking system, as it believes in the graduation process.

It suggests bank to prefer Self-help Group, not any particular individual.

In running the self-help group program, the group wisdom is very important.

Before going to operate the program at the grassroots level, NABARD had completed a six-year research on its feasibility.

However, Mr. Bakshi’s experience in the NABARD reveals that along with the rise of savings amount in the account of the member, the demand for loan always increases and so does the number of borrowers.

Mr. Bakshi told that one of the components of the action plan of poverty alleviation program of NABARD is providing training to the members for their capacity building. In this respect, he said, well-articulated training for the trainers is very important.

For providing the poor with financial service consistently, regular financial sources are very necessary. In the case of NABARD, it gets funds from the commercial banks in India.

Responding to a question from the audience, Bakshi said that in all the operational processes, NABARD tries to gain financial sustainability through putting the cost to a certain limit.

Answering to another question, he said that the microfinance institutions should not take the responsibility of social aspects of the development, such as literacy.

To another query, Mr. Bakshi said that in India there is no fixed cap on the interest rate of bank loans.

Mr. Shafiqual Haque Choudhury, Managing Director, ASA, Bangladesh

In his speech Mr. Shafiqual Haque said, for lack of institutional capacity the formal banking sector cannot provide wide-scale financial services to the poor. They could cover only 17% of the population in Bangladesh. The non-formal sector that includes NGOs and cooperatives has evolved to fill this gap. Microfinance institutions like ASA proved that giving the poor financial support is sustainable.

ASA, established in 1978 as a grassroots socio-cultural organization, has transformed into a solid microcredit institution. In early 1990s, ASA had begun to focus on microfinance programs. In the following decade, ASA specialized in the provision of microfinance services, refining its operational structure and developing its low-cost delivery method. ASA focused on becoming self-reliant, sustainable and independent of donor grants, in 2000.
Financial self-reliance is the key to ASA's success. Shafiqual Haque elaborated how ASA acts for the poor.

1. Reaching the Poorest: All of ASA's loans are made to individuals, with no collateral or group liability component. The service charge is calculated flat on the principal of the loan.
ASA's basic loan program offers small loans to women whose monthly income does not exceed $52, and who own less than 0.5 acres of cultivatable land. The small loan product has a standardized weekly repayment schedule and a fixed term of one year.
Reaching the risk-averse poor: This loan product of ASA targets the hard-core poor. ASA is opening new mini-branches that will help to provide services in remote areas.
SEL (Small Enterprise Lending) Program: ASA believes that small, productive enterprises can create employment opportunities for the poorest. This loan product of ASA offers larger loans of US $520 to $2600 to medium size enterprises. ASA plans to expand this program, graduating current successful Small Loan Clients and recruiting new clients. The target is to graduate one female member from each of its groups. It can result in the creation of 10000 new jobs for the hard-core poor.

2. Reaching and Empowering Women: ASA does this through its group-based loan programs. The income generated from the loan project supplements the household income, while the women gain increased bargaining power in the affairs of her family. The loan delivery methodology allows women to form and build a support network.

3. Building Financially Self-sufficient Institutions:

ASA recognizes that financial self-sufficiency and operational capacity are crucial for an organization to expand outreach, and to deliver financial products cost-effectively. In 1996, ASA became financially self-sufficient.

4. Ensure Positive Measurable Impact on the Lives of the Clients and Their Families:

ASA periodically designs and implements impact assessments of its programs, i.e. what impact it has had on the lives of the member-families for whose poverty alleviation it works.
Shafiqual Haque also spoke about how to replicate the ASA model: -

* The leader of the organization must be a serious player of the game.
* Procedure of the organization must be simple.
* The vision of the organization will be pro-client.
* The institution concerned must have access to funds.
* Cooperation from the microcredit community and the government is also essential.

Open Discussion

When asked how ASA copes with the competition in the microcredit market, the Managing Director of ASA said the market is quite big and the competition there proves to be good as it helps remodel and reshape the service while stringencies go away and flexibility gets in. Competition is a norm of democratic culture.

Responding to another question whether the current interest rate in the sector can be reduced, Shafiqual Haque replied in the negative, saying that this rate of interest helps this movement to subsidize other programs for the poor.

When asked if financial assistance alone can help the poor, he said that if there is a sustainable microfinance program, the beneficiaries could be helped substantially. However, organizations should come forward to provide services other than financial assistance.

Summing up by the Chairperson

Ms. Kate Mckee in her speech told about why and how the organizations, including microcredit ones, should prepare their respective actions. She also elaborated on the efficacy of a well-thought out action plan and the potential difficulties if a particular organization fails to chart out the plan of action.

Ms. Mckee also emphasized on action plan for microfinance institutions when their outreach is growing very rapidly. To grow up through a sustainable process, microfinance institutions need action plan, she added.

Ms. Mckee was of the opinion that the participants of the Summit have been greatly benefited from the deliberations of Prakash Bakshi and Shafiqual Haque Choudhury, as they represent two of the largest microfinance institutions of the world.